In a broadly diversified portfolio, it always pays to hold a
batch of blue-chip stocks and a few more speculative names. Some of
these speculative names can surge very quickly, giving your
portfolio a healthy boost.
Since the start of 2011, roughly a dozen stocks (with amarket value
of at least $1 billion) have risen more than 60% in value.
Some of these companies toil in the energy sector, which has gotten
a material lift from rising energy prices. Whether these stocks can
climb even higher is simply a function of future energy price
trends, for which we hold no crystal ball. But here are three names
that are poised to make another move.
1. Broadsoft (Nasdaq: BSFT)
This stock has all the signs of bubble. Broadsoft, which makes
communications software, has a limited history as apublic company ,
having gone public just nine months ago. Since then, the company's
paired with several strong quarters has pushed the stock up more
than 400% in just four months.
The euphoria has been somewhat understandable. Sales surged 39% in
2010, more than twice the expected rate when the company first went
public last June. And sales could rise more than 20% in 2011 and
2012 based on current business trends. But that's how you need to
see this -- as a three-year growth story.
Broadsoft operates in a
that is in the midst of a near-term upgrade cycle. Telephone and
cable companies are spending heavily to better manage all the
multimedia sessions being handled on their networks. Once the
software is in place, this niche should look like many other
telecom software niches -- mature and slow-growing.
Momentum investors are clearly focused on the present, noting that
earnings per share (
could double from 2010 to 2012 to around $1 a share.Shares trade
for more than 50 times that view. Yet,profit growth looks set to
cool beyond 2012 -- that's simply the nature of telecom spending.
It is intensely directed to certain areas for a short stretch, and
then the carriers move on to focus on another area.
Perhaps the main reason
are so lushly valued is the expectation that Broadsoft will be
acquired. That's one of the main challenges to shorting a stock
like this. Yet, if no suitor emerges in coming months, then those
momentum investors may no longer choose to wait around.
2. IPG Photonics (Nasdaq: IPGP)
This company has also surged in recent months, but its valuation is
more attractive and its growth opportunities could extend well into
the long-term. IPG owns a wide range of patents on the use of
lasers in telecom networks, medical technologies and industrial
applications. As is the case with Broadsoft, IPG has been on a
tear. Sales shot up 60% in 2010 and per-share profits rose by
is surging, which is why analysts think sales could grow another
40% this year.
Yet, this company may just be getting going. Demand for the
company's lasers is surging in China, where a wide range of
manufacturers are using IPG gear for cutting, engraving and
welding. In Russia, the company has garnered interest for the use
of lasers in fiber-optic telecom networks. IPG's Russian subsidiary
is partnering with a leading Russian technology firm, RUSNANO, to
help develop opportunities.
It all comes down to valuation. Whereas Broadsoft trades for 200
times trailingearnings , IPG trades for 50 times trailing
. And while Broadsoft trades for 50 times projected 2012 profits,
IPG's forward multiple is about 20. Both of these are high-growth
businesses, but IPG's long-term view is perhaps even brighter than
Broadsoft's -- and its stock is noticeably cheaper.
3. Manitowoc (
Wherever you see construction sites, you usually see cranes. And
many times you'll see the name "Manitowoc" painted on their sides,
as this company is the world's largest crane supplier. Manitowoc is
finally on the mend after a brutal few years. Customers stopped
ordering cranes in 2008 and 2009 since there were so many used
cranes available on the second-hand market after a number of
globalreal estate construction jobs were shut down. Sales peaked at
$4.5 billion in 2008 and then slumped for two straight years,
turning years of profitable results into a pair of money-losing
Manitowoc is now bouncing back, reporting swelling demand for its
cranes. As long as the globaleconomy doesn't stumble, the next few
years could be quite robust. Goldman Sachs sees profits steadily
building, hitting $2.50 a share by 2013, compared to $0.16 in 2010.
Shares surged mightily on Feb. 1 as investors took note of
Manitowoc's vastly improved outlook. That led analysts at Brean
Murray Securities to note that "despite the almost 30% run-up in
the stock price today, we believe the stock may be cheaper now than
in the last week given the tangible earnings profile and inflection
in crane orders and profitability."
Despite the recent strong run, shares appear reasonably-priced at
just 15 times the 2012 consensus
forecast of $1.42. They trade for just eight times the Goldman
Sachs 2013 forecast ($20 / $2.50 = 8). As a cyclical play, shares
will never get a high multiple, but if the global
can be on a sustained growth path into the middle of the decade,
then profits have room to rise further. And so do the shares. They
still trade for less than half of the levels seen three years ago
-- the last time the global economy was healthy. I don't expect
shares to hit $50 again anytime soon, if at all, but a move from
$20 to $30 or even $35 isn't out of the question.
Action to Take -->
If you are going to pursue hot stocks like the ones in the table
above, you have to pay attention to valuations. Reasonable
multiples will help prevent major downside moves if these growth
stories have any hiccups along the way.
Of the three stocks I mentioned, Broadsoft is the obvious short.
It's a pure momentum stock that, barring a takeover, is likely to
fall soon. Manitowoc seems like the safer play, possessing 50%
upside or more. IPG is a bit riskier but could do even better as a
-- David Sterman
P.S. -- I don't know if you're aware of this or not, but a
20-year energy agreement between the United States and Russia is
about to expire. The problem is, this deal supplies 10% of
America's electricity. When the Russians refuse to renew the
agreement, the U.S. will face an entirely new kind of energy
crisis. This disruption could send a handful of energy stocks
through the roof. Keep reading…
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.